Global Business Strategy

(Chapter 5)

Dept of Technology Management for Innovation (TMI), Graduate School of Engineering

Professor Kazuyuki Motohashi

工学系研究科技術経営戦略学専攻教授元橋一之

http://www.mo.t.u-tokyo.ac.jp

Topics to be covered

• Business (Technology Management) Strategy

• Product architecture and difficult to catchup

business model

• Global Infrasctuture business as an example of

complex system

• Business planning: practical guide and

introduction to global business competition

• Introduction to next class: case study on

Neemrana Industrial Park

What is Strategy (戦略)?• Long term direction of whole firm activity for

improving firm value

– Strategy : Originally military term, referring to Sunzi孫子)

– MOST

• Mission: Principle, Creed (ex. “Sony is a frontier”)

• Objective: Detail description of “mission”

• Strategy：Materialization of mission, objectives into actions (ex. 3-5 years action plan in corporate management)

• Tactics：Detail descriptions of corporation action

• 「知彼知己、百戰不殆」（Know yourself, like yourenemy)

– “External competitive environment” and “Internal competency analysis”

– ３C：Competitor, Customer, Company

Development in emerging economies

Such as China and India

New

competitors

New

markets

Global Business Strategy• Shift to “good enough market” and improvement in cost

competitiveness

• Business model re-organization by service dominant

design

World in not so

flat,

understanding

distance

Consistency

with corporate

strategy

Issues of technology managements in

emerging economies

• Technology catch-up of local competitors are very

fast. How to protect our propriety technology? By

patent? Trade secret?

• At the same time, partnership with local players is

important

• Re-configuration of business model: difficult to be

imitated one: product model -> complex system,

service model

Catching up of Chinese firms

https://www.telephonesonline.co.uk/blog/mobile-market-shares/

Why domestic car is not so popular in

China?

Product Architecture

Modular Product Architecture Integral

Low Functionality/quality/price High

Fast Innovation speed Slow

Difference in product architecture

Integrated architecture Modular architecture

Service model (service dominant logic)Product-centric Model Service-centric Model

Unit of market exchange Products Specialized knowledge and

skills embodied in the

services and products that

customers gain

Product role Key component of market

exchange

Intermediary that creates

customer value

Customer role Receiver of product Collaborator in services

gained from products

Determiner of value Corporations (value is

attached to the product

itself)

Customer (value

determined by benefit

gained by customer;

corporations are nothing

more than proposers of

value)

Source of value added

services

Surplus created from

exchanges of tangible

products and management

resources

Surplus created by

exchanges of specialized

knowledge and skills from

products and services

Vargo and Lusch (2004)

Product architecture and value creation

Siz

e o

f valu

e a

dded

Level of complexity (difficulty in imitation)

Aircraft

(CoPS)

Auto-

motivesEV?

Mainframe

computer

ModularizationUnbundlin

g, c

om

petitio

n

PC

IT

servicesService

scienceScalability

in services?

Driving forces

Siz

e o

f valu

e a

dded

Level of complexity (difficulty in imitation)

Aircraft

(CoPS)

Auto-

motivesEV?

PC

Scientific approach for innovation

(digitalization, modularization..) and

technological catching up

Gro

win

g “

Good

Enough M

ark

et”

Protection of propriety technology

(IPR), increasing complexity, strategic

investment in complex system

innvation

What is complex service system?

Complex system of products

Operation and Controlling Functions

Value Proposition

to the customer

Low cost/

high

performanc

e

Local environment Organizational factors

Complex system case: global

infrastructure business

• Infrastructure development

needs in Asia until 2020

reaches $8 trillion due to

urbanization (METI estimates).

• Public money cannot cover

such amount, so that PPP

(public private partnership) is

needed.

• Analyzing infrastructure

business is important

• Risk analysis and

simulation

• Business modeling with

relevant players

Types of PPP

Design Build Operation

• BOT (Build Operate Transfer): concession contract

• BOO (Build Own Operate)

• Leasing: Public leases out for private, affermarge

• Joint Venture

• Operations or management contract

• Cooperative arrangement: public supports to private

Complex system of PPP project

Project

Company

(SPC)

Japanese

Government

Host country

Government

Equity

Investor

LenderCustomer

Contractor

SupplierLocal

Partner

Contract

Influence

$$$(ODA)

Policy

Business Plan Items• Executive Summary

• What is your company? (in case, you represent a particular company such as Hitachi)

• Management Team and Division of Labor

• What kind of global business?– Summary of your new business including information on the

country or the region of your business to be introduced

– Business model of your proposal • Who’s your customer?

• Market and competitor analysis

– Risk analysis• Potential risks and contingency plan

• Business execution planning (HOW)– Partnership with local players (with whom? why?)

– Local operation

– Marketing plan

• Business Plan Evaluation (such as NPV, IRR analysis)

15 min presentation in the last class of this course

NPV Project Evaluation

Cash Flow

)0(

)1(1

==

+=

=

NPVrIRR

r

CFNPV

T

tt

t

EPC (Engineering, Procurement and Construction)

O&M (Operation and Management)

Hitachi NSEC experience

• Electricity demand increases: 34 companies (14

started its operation)

• However, some firms starts using Grid power for

non critical demand (lightning, air conditioning

etc.)

• Investment in shared company (shared energy) is

new to factory (difficulty in convincing).

• Technical difficulty in diesel engine grid.

Stop decision at F/S stage, then what happened?

② Mitsui Prime 09-6

Mega solar power plant(NEDO demonstlation project)

Logistics center

- Improve logistics efficiency- Reduce environmental burden

- Water treatment system- Water park

- Gas power plant- Control server

Contribution Stage 2 (to Indian companies(Power, Water treatment service and Logistics

information to Phase1,2 area )

Phase 1、2（Indian companies area)

Phase 3（Japanese companies area)

Information of traffic conditions

Contribution Stage 1(Power, Water treatment and Logistics

information to Phase3 area)

Water treatment system-Contribution to environmental

protection- Collaboration with power plant

- Increase water efficiency

Neemrana Smart Factory Plan (1)

Neemrana Smart Factory Plan (2)

METI

Sumitomo Japan

Power project Logistics project

Kansai Power

Nittsu IndiaKinden SMBC

Rajasthan State

N-SEC Sumitomo India

Japanese

companies

RIICO Govt. level

India - side

・Coordination with user companies・Dealing with both governments

Water treatment project

Hitachi Ltd.

NEWJEC

Indian companies

Japanese Emb.

NEDO

JETRO

Hitachi Hitachi Plant Tech.

Private companies level

FS participating companies

N-SECJapanese companies committee

Application for 2010-11 Infrastructure/ Systems development funds

Nittsu

HRI MizuhoJRI Mizuho

Hitachi India

Ministry of Economy ,Trade and Industry

NEDO: New Energy and Industrial Technology Development Organization JETRO: Japan External Trade Organization RIICO: Rajasthan State Industrial Development & Investment Corporation Ltd.

Hitachi